- Upper Tribunal (Lands Chamber)
- 3 August 2022
- Judge Elizabeth Cooke and Mark Higgin FRICS
- [2022] UKUT 206 (LC)
- [2022] PLSCS 130
Rating – Non-domestic rates – Valuation Tribunal for England determining nominal rateable value of museums using receipts and expenditure method – Appellant valuation officer appealing – Whether existing methodology for valuing museums to be refined by assessing “socio-economic value” – Appeals dismissed
The respondent operated the Laing Art Gallery in Newcastle, the Shipley Art Gallery in Gateshead and the South Shields Museum. It was a body created by four local authorities in Tyneside to which they had delegated their function under sections 12 and 14 of the Public Libraries and Museums Act 1964 of providing a museums service. None of the museums charged for admission and all three operated at a deficit. The properties were assessed for the purposes of the 2010 Rating List as: £193,000, £94,500 and £62,500 respectively.
The Valuation Tribunal for England (VTE) subsequently determined each assessment at a nominal rateable value of £10, citing the decision in Hughes (VO) v Exeter City Council [2020] UKUT 7 (LC) (Exeter Museums) which, together with Hughes (VO) v York Museums and Gallery Trust [2017] UKUT 200 (LC), provided a comprehensive review of the law relating to the valuation of museums for the purposes of non-domestic rates. The effective date was 1 April 2015 for all three properties because of the limitation on backdating imposed by legislation.
The appellant valuation officer appealed arguing that it was possible, and consistent with the decision in Exeter Museums, to refine the existing methodology for valuing museums by assessing their “socio-economic value”, meaning their non-financial benefit to the public and their economic value to public authorities. That value yielded a positive value for all three properties. He conceded that the original assessments were too high but argued that they should be amended to £46,800, £3,500 and £12,900.
Held: The appeals were dismissed.
(1) Schedule 6 to the Local Government Finance Act 1988 (as amended by section 1(2) of the Rating (Valuation) Act 1999) set out the basis on which the rateable value of a non-domestic hereditament was to be determined. It was equal to the rent at which the hereditament might reasonably be expected to let from year to year at the material day (here 1 April 2010) but having regard to values at the antecedent valuation date (here 1 April 2008).
There was no legal rule prescribing the method by which that rental value was to be determined; it was a matter of valuer judgment. The best approach was to look at the rental evidence from comparable properties. Where there was no rental market for the property in question, alternative methods were used. In this case, the VTE used the receipts and expenditure method, which sought to arrive at the annual rental value of premises by assessing the gross receipts which a prospective tenant would expect to achieve from a business carried on at those premises, and by deducting operating expenses, including the cost of repairs, and a sum to reflect the return on capital and profit the tenant would require, to determine the surplus which it is assumed the tenant would be prepared to pay to the landlord in rent in return for the annual tenancy: York Museums considered.
(2) The crux of the appellant’s case was that the socio-economic value of the three museums was measurable and would inform the rental bid of the hypothetical tenant leading to a positive rateable value, which could be calculated as a percentage of gross receipts. Such a rent would be affordable; it was consistent with reality, as could be seen by the rents paid for comparable properties, and was not wholly out of kilter with the storage value of 25% of the gross internal area of the three museums.
The Arts Council for England (ACE) had produced step-by-step guidance which was the industry standard for compliance with the HM Treasury Green Book requirements for measuring social value, for the purposes of public expenditure and also for use by museums in applying for funding.
However, the figures generated by the ACE guidance represented value to as many people as possible. The methodology aimed to maximise value by capturing as much of it as possible, at a national as well as a local level, in order to inform not only national government spending but also to attract the generosity of grant providers. It was not concerned with the specific value of a museum to its local authority. Of course, the local authority funded its museum in order to generate socio-economic value, but there was no methodology available to translate that social value to the public into value to the local authority itself. That was fundamental to the rating hypothesis.
(3) There was no methodology available to translate that value to the local authority into its willingness to pay any rent at all, let alone how much. It was not obvious that, where rent was paid for a museum that operated at a deficit, the reason for that rent was an overbid based on socio-economic value. Furthermore, the sample of comparable properties was too small, there was too little evidence available for each property, and what evidence there was appeared to indicate that none of the properties in the sample was particularly comparable either to the other comparables or to the appeal hereditaments.
The value of the socioeconomic benefits generated by the three museums did not show their value to the hypothetical tenant; nor did it say anything about the rent that the hypothetical tenant would be willing to pay for the hereditament in order to obtain that value.
(4) There was no rental market in which local authorities’ willingness to pay could be demonstrated; from the few transactions that involved a rent, no useful evidence could be gleaned as could be seen from the comparables provided here. And while there had been extensive research of the public’s willingness to pay for visits to museums which were currently free, there had been no such research of local authorities’ willingness to pay rent.
Although local authorities paid for socio-economic value by funding museums, there was no evidence from which to conclude that the hypothetical tenant local authority would pay rent for the museums in addition to the funding and support they already provided.
Accordingly, the VTE was correct that there was no material on which it could use anything other than the receipts and expenditure method, which it was agreed generated a nominal rateable value.
Paul Reynolds (instructed by HMRC Solicitor’s Office) appeared for the appellant; Jenny Wigley QC (instructed by Stuart Ward Solicitors, of Hull) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Allen (VO) v Tyne & Wear Archives and Museums
